Which of the following is the best way to prevent an agency problem between shareholders and managers?
A) Maintain a proportional relationship between a manager's bonus and the number of employees in the firm.
B) Compensate managers to a significant degree with shares of stock in their firm.
C) Reward managers if they keep costs below the budgeted amount.
D) Pay managers a bonus if their division exceeds its targeted market share.
E) Pay managers a bonus if their division exceeds its quarterly sales target.

Question

Quizplus · Accepted Answer

Aligning managers interest with shareholder interest helps prevent the principal-agent problem.

Which of the Following Is the Best Way to Prevent